Asian Markets Mostly Up but Huawei, Trade War Loom Large

HONG KONG, May 21 — Asian markets mostly rose today but concerns about the Huawei row and broader China-US trade war kept investors on edge, with analysts warning the crisis could rumble on for some time.

Regional investors were spooked by a sharp drop in New York’s tech-rich Nasdaq after Google said it was beginning to sever ties with the Chinese telecoms giant, days after Donald Trump’s decision to bar it from the US market and put it on a sales blacklist.

The Huawei development — with the US citing national security concerns — has muddied the waters in the tariffs stand-off between Washington and Beijing, which was thought to have been close to conclusion at the start of the month.

And now some observers are warning that stalled talks between the economic superpowers might not see any progress before a hoped-for meeting between Trump and China’s Xi Jinping at the G20 in June.

“The market was a little optimistic that a trade deal would just get done here this month,” Brett Ewing, chief market strategist at First Franklin Financial Services, told Bloomberg News.

Dealers have “definitely come to terms with a longer term trade negotiation process”.

While the Commerce Department issued a 90-day reprieve on the ban on dealing with Huawei, saying breathing space was needed to avoid huge disruption, the two appear to be digging their heels in.

And yesterday China’s envoy to the European Union called the Huawei move “wrong behaviour”, adding “there will be a necessary response”.

Zhang Ming warned: “Chinese companies’ legitimate rights and interests are being undermined, so the Chinese government will not sit idly by.”

The developing crisis had a mixed impact on Asia’s tech firms, with Samsung Electronics, a rival to Huawei in the smartphone market, rallying 2.7 per cent.

Analysts say the US ban will damage Huawei’s ability to sell phones outside China, offering Samsung a chance to consolidate its position at the top of the global market.

But in Tokyo, Sony shed more than four per cent and Sharp was off 2.5 per cent, while Taiwanese chip giant TSMC shed 1.7 per cent.

In early trade London rose 0.4 per cent, Paris added 0.2 per cent and Frankfurt put on 0.6 per cent.

Pound suffers again

“As trade wars hurt demand in the US and China, Asian electronics manufacturers will feel considerable pain, in our view,” Tieying Ma, an economist at DBS Group, said.

After an initial sell-off, Shanghai’s composite index ended more than one per cent higher, with some observers concurring with Huawei boss Ren Zhengfei that the firm could absorb the impact of the ban.

“The global telecom supply chain can still work perfectly without the US suppliers,” said Sun Jianbo, president of China Vision Capital Management in Beijing.

“China and US are unlikely to allow the worst-case scenario, which involves putting up trade barriers on all fronts, as it will mean great losses for both parties. So the worst possible case may have been priced” into markets.

Sydney rose 0.4 per cent, Seoul added 0.3 per cent and Taipei was 0.7 per cent higher, with Manila, Mumbai, Bangkok and Jakarta all in positive territory.

But Tokyo ended down 0.1 per cent with Hong Kong dropping 0.3 per cent in the afternoon and Wellington closing off 0.2 per cent.

“The US-China trade war is in danger of assuming Brexit-like characteristics — long and drawn out with a series of false dawns, but with no discernible progress made after a lot of emotional noise,” said OANDA senior market analyst Jeffrey Halley.

On currency markets the pound fell again and remains lodged around four-month lows against the dollar as Prime Minister Theresa May struggles to get opposition Labour backing for her Brexit deal, meaning it is likely to fail on her fourth attempt to pass it through parliament next month.

There is growing concern May will step down if she loses again, leaving the path open for a hardliner who is keen for a no-deal divorce, which many experts say will be economically destructive.

Australia’s dollar sank 0.6 per cent against the greenback after central bank officials hinted at an interest rate cut to record lows when it holds its policy meeting next month.

Oil prices rose after major producers said supplies were sufficient and stockpiles still rising, but gains were capped by the China-US tensions.

Key figures around 0720 GMT

Tokyo – Nikkei 225: DOWN 0.1 per cent at 21,272.45 (close)

Hong Kong – Hang Seng: DOWN 0.3 per cent at 27,713.57

Shanghai – Composite: UP 1.2 per cent at 2,905.97 (close)

London – FTSE 100: UP 0.4 per cent at 7,337.00

Pound/dollar: DOWN at US$1.2707 from US$1.2725 at 2050 GMT

Euro/dollar: DOWN at US$1.1148 from US$1.1165

Dollar/yen: UP at 110.21 yen from 110.04 yen

Oil – West Texas Intermediate: UP 31 cents at US$63.41 per barrel

Oil – Brent Crude: UP 23 cents at US$72.20 per barrel

New York – Dow: DOWN 0.3 per cent at 25,679.90 (close)


Tabung Haji 1Q Net Profit at RM440m After Successful Restructuring

KUALA LUMPUR (May 13): Lembaga Tabung Haji (TH) posted a sustainable performance by recording a net profit of RM440 million in the first quarter ended March 31, 2019, as a result of the successful completion of its restructuring and rehabilitation process implemented at the end of December 2018.

During the quarter, TH’s earnings totalled RM623 million.

TH, in a statement today, said its financial position strengthened with total assets exceeding total liabilities of RM1.2 billion, supported by improved portfolio investment performance, as well as overall healthy quality of assets after impairment was made in 2018.

TH expects its revenue will continue to increase from the second quarter onward with the issuance of sukuk by Urusharta Jamaah Sdn Bhd which will provide a return of almost RM800 million a year and the implementation of a new investment adjustment process.

During the three-month first quarter, more than 91,000 new savings accounts were opened, thereby increasing the total number of TH depositors to 9.3 million, it said.

“As an institution that helps Muslims save for the haj, the fund management operations remained smooth without any interruption during the quarter.

“TH recorded new savings of RM4.3 billion, while withdrawals accounted for RM4.6 billion,” it said.

In the run-up to the haj season later this year, TH said extensive preparations were made during the quarter, including the implementation of various initiatives to ensure quality services to all pilgrims.

It said among the initiatives to be undertaken for this year’s haj season are improving the pre-depature process in the country which will shorten the waiting period at the Jeddah and Madinah haj terminals.

TH will also provide air-conditioned tents in Arafah to provide comfort, as well as address health-related risks due to the hot weather and prepare Malaysian meals for the pilgrims in Masyair (the grand assembly site).

The first haj flight is scheduled to depart on July 4, 2019, while the last flight on Aug 4, 2019, it added.


OPR Cut Provides Relief to Economy

KUALA LUMPUR: Bank Negara Malaysia’s overnight policy rate (OPR) cut is a necessary move to provide a relief to the economy despite coming in sooner than earlier expected, economists said.

This is especially true in the face of global uncertainties brought about mainly by the trade tension between the two largest economies in the world, they added.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid believes the OPR reduction was a pre-emptive measure to ensure the country’s economic growth continues to be sustainable.

“I think we need to view the objective of such policy response that is to provide support to the economy by making monetary condition very accommodative,” he said when contacted by the New Straits Times.

Afzanizam said this essentially would reduce the cost of funds that can help stimulate investment activities.

This will be backed by the revival of mega projects such as the East Coast Rail Link and Bandar Malaysia that would result in higher demand for corporate financing, he added.

Lower OPR would also mean slightly lower monthly commitment for existing mortgages or any financing contracts that have variable rate features, he said.

“Many would ask whether the latest move would impact the ringgit negatively. The OPR cut is part of a very medium-term kind of growth story and that should help the ringgit to appreciate over time,” he added.

Putra Business School business development manager Prof Madya Dr Ahmed Razman Abdul Latiff said analysts had expected the cut to happen in July. But recent developments especially on US-China tariff war had lowered confidence in the market and could slower the growth.

“Hence the reduction in rate is supposed to provide the stimulus by encouraging borrowings and not on savings,” he said.

Socio-Economic Research Centre executive director Lee Heng Guie said the central bank’s OPR cut would provide some relief to the local economy.

“The reduction does not signal that things are getting bad but rather to provide some relief, in light of uncertainties in the external market.

“The cut would also preserve the country’s economic stability that gives some relief to the market and investors,” he said.

Lee believes there will not be another series of rate cut as the government still has the spending to ensure the economy is growing.

Source: New Straits Times

Axiata and Telenor in Talks to Merge Asian Operations

KUALA LUMPUR: Two Asian telco giants — Malaysia-based Axiata Group Bhd and Norwegian Telenor Group — are in talks to merge their operations in Asia.

In terms of geographical presence, Axiata has a wider footprint. While the two mobile service operators both have a presence in Malaysia, Thailand, Myanmar, Bangladesh and Pakistan, Axiata also operates in India, Sri Lanka, Nepal, Cambodia and Indonesia where Telenor is not present.

The negotiation also involves Axiata’s operations in Cambodia, Indonesia and Sri Lanka, apart from countries where both have a presence, according to sources familiar with the merger talks.

However, the value of the merger is not known as of now.

Axiata’s 80% stake in Nepal’s NCell Private Ltd is not on the negotiating table. The reason could be concerns over the tax issue it faces in Nepal after the recent RM1.45 billion capital gains tax bill that Axiata was required to stomach, said the sources. However, it is not sure if Telenor is keen on Axiata’s Indian operation.

In Malaysia, Axiata wholly owns Celcom Axiata Bhd while Telenor controls a 49% stake in Bhd.

The substantial shareholders of Axiata are Khazanah Nasional Bhd — the single largest shareholder with a 37.16% stake — Permodalan Nasional Bhd with 18.42%, and the Employees Provident Fund with 16.16%, according to its annual report 2018.

The two telcos have already hired foreign investment banks to advise on the merger and acquisition exercise, the sources said. Should the merger talk materialise, it would be a mega merger in Asia that involves at least 300 million mobile subscribers.

Other major telcos, which have regional presence here, include Veon Ltd, Singapore Telecommunications Ltd, Vodafone Group Plc. and Bharti Airtel Ltd.

Mergers in the telco industry are not that surprising, according to analysts, given the tough operating landscape that features cut-throat competition, razor-thin profit margin and heavy capital expenditures that eat into shareholders’ dividends. Mergers will improve economies of scale and help to share investment burden and high fixed costs.

It is learnt that post-merger, Axiata will be a shareholder of the merged entity, which is expected to be an investment holding company that owns the enlarged regional mobile service operation. Axiata will also continue holding the 80% stake in NCell and its equity interest in Axiata Digital Services Sdn Bhd, in which Mitsui & Co Ltd has taken up a minority stake.

When Axiata announced last Friday that Mitsui had taken up the stake in Axiata Digital, it did not reveal the value of its stake. What it did reveal was that the investment establishes a pre-money enterprise value of US$500 million (RM2.07 billion) for the core digital business of Axiata Digital.

The core digital business includes Boost, the e-wallet service; (ada), the largest independent digital agency in the region; and Apigate, an emerging global application programme interface platform provider.

In an interview with The Edge Malaysia weekly in February, Khazanah managing director Datuk Shahril Ridza Ridzuan said Khazanah’s portfolio will have a 70:30 split, with 70% of its assets falling under the “commercial” basket that is used to fulfil its long-term asset growth target.

Axiata Group Bhd, CIMB Group Holdings Bhd, UEM Sunrise Bhd and its remaining 26% stake in IHH Healthcare Bhd are in the “commercial” pool that it will monetise, if the right value exists.

The remaining 30% will be its “strategic” basket, which, he said, fulfills a strategic role in the country’s development and encompasses Telekom Malaysia Bhd, Tenaga Nasional Bhd, Malaysia Airports Holdings Bhd, Malaysia Airlines Bhd as well as Iskandar Investment Bhd.

Source: The Edge Malaysia